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Will a Windows Phone Price Drop Make a Dent in iPhone and Android?

By John Casteele – Mar 3, 2014 at 12:04PM

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Despite making headway in international markets, Windows Phone still struggles to increase its global market share. Will new features and an initiative targeting the low end of the smartphone market help it to move more devices?

Microsoft's (MSFT 1.05%) Windows Phone mobile OS has been fighting an uphill battle to gain market share against Google's (NASDAQ: GOOG) Android and the iPhone's iOS. While it has made headway in international markets, the platform's low adoption rate in the United States has kept its overall market share low. After impressive (for Windows Phone) sales of the low-priced Nokia (NOK 0.65%) Lumia 520 and 521, however, Microsoft may be adjusting its strategy a bit.

Instead of trying to compete against Apple and high-end Android devices, the company may be looking to lower costs as a means of enticing phone manufacturers to create low-end Windows Phone devices. The plan sounds reasonable, but will it have any effect?

Cutting prices
The latest update to Windows Phone, the upcoming Windows Phone 8.1, will introduce a number of new features to the platform. In addition to features such as a Siri-like virtual assistant named "Cortana," a new notification area, and the rumored ability to add a background image that appears across multiple tiles, the update will remove the need for physical buttons on Windows Phone devices. This will not only bring the OS more in line with the onscreen buttons used by Android and iOS, but will also reduce the cost for manufacturers since they can reuse Android bodies and concepts instead of having to produce separate Windows Phone devices.

This isn't the only way that Microsoft is cutting costs, either. The company is rumored to be cutting its Windows Phone licensing fees by up to 70%, significantly reducing the cost of putting the operating system on a phone. This would not only encourage additional manufacturers to produce Windows Phone devices, but would also allow them to sell the end product at a lower price to attract more low-end customers.

Adding partners
In addition to making Windows Phone devices cheaper to produce, Microsoft also recently announced new hardware partners. Nine new companies including Lenovo (LNVGY 7.38%) and LG are joining existing partners such as HTC, Huawei, and Samsung (NASDAQOTH: SSNLF). Lenovo is rumored to be hard at work on its first Windows Phone device, with a possible launch coming as early as this summer. Samsung is also rumored to have a Windows Phone product on the way, which supposedly will be a follow-up to its previous ATIV S Windows Phone offering. Both Lenovo's phone and Samsung's ATIV SE will feature Windows Phone 8.1 at launch.

It's also interesting to note that some of Microsoft's new partners are component manufacturers. Foxconn (NASDAQOTH: FXCNY) in particular is worth paying attention to since its components are used in a number of other devices. Having the company on the side of Windows Phone could further reduce manufacturing costs while producing hardware that has been optimized for use with the operating system.

Premium options
While the focus of Windows Phone seems to be shifting toward lower-end devices to take advantage of the platform's popularity in struggling and emerging economies, not everything produced for Windows Phone moving forward will be on the low end. The Nokia Lumia Icon, for example, was launched last month at a $149 price point and features a 20-megapixel camera, a full HD display, and a 2.2GHz Qualcomm Snapdragon 800 quad-core processor. It's likely that Samsung's ATIV SE will fall in the mid-range as well, and additional premium phones will likely appear as a counterpoint to low-end phones to tempt a wider range of consumers. 

Does Windows Phone have a chance?
While these initiatives show that Microsoft has a plan to expand Windows Phone's market share, that doesn't mean that the platform's going to become hugely successful anytime soon. Android still maintains dominance over the smartphone market, and Apple has successfully maintained the "premium" image of the iPhone despite pressure from lower-priced options.

That said, Windows Phone has slowly but surely been gaining market share. The latest mobile phone forecast from IDC projects that growth to continue, going so far as to claim that Windows Phone will be the fastest-growing mobile platform in the coming years and will attain a 7% global market share by 2018. This projection sees that growth being built on the back of low-end phones, so there might be some merit to Microsoft's plans after all.

John Casteele owns shares of Apple, Microsoft, and Nokia. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple and Microsoft. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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